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It's, well, 3-D but with advanced graphics technology that does away with the funny-looking glasses. If Nintendo's 3DS game device proves to be as slick as they say—users will be able to take 3-D photos and watch 3-D videos—it will be yet another breakthrough product for the Japanese gaming giant. Its huge success with the Wii and the DS hand-held consoles, along with beloved software such as SuperMario Brothers and Pokemon, already has set it as the world's premier gaming specialist and the one with the biggest market value, $39 billion.

The 3DS should be available in Japan by late February and in the U.S. about a month later. It's expected to retail for about $250.

With the launch of the 3DS, scheduled for late February in Japan and late March for the U.S. and Europe,
Nintendo
may be on the verge of a major product cycle that could power its shares sharply higher. The stock and the company's American depositary receipts (ticker: NTDOY) could jump 25%.

Initially, 30 software titles will be available for the console, including retooled versions of classics such as Madden NFL Football and sequels like Nintendogs+Cats (the original let you create a dog and play with it; guess what the new one adds). The games will be priced at about $40 a pop if preordering on Amazon.com is any indication, or between $10 and $15 higher than games for the DS. It comes with some free "augmented reality" games that turn the ordinary into the fantastic: In FaceRaiders, for instance, you battle your evil twin, after the device takes a picture of you and turns it into an onscreen figure. There's a lot of excitement building, too, around the availability of sports broadcasts on the 3DS.

In an uncharacteristic show of corporate zeal, Nintendo's president, Satoru Iwata, recently predicted the 3DS, priced at an attractive $250, will see a "rocket start." The company has forecast 4 million unit sales in the month between the launch date and the end of its fiscal year 2011 on March 31. That would be almost double the first-month sales of the revolutionary Wii, which you control by waving a stick rather than pressing buttons. It's instructive to remember that at the peak of the Wii's popularity in 2008, Nintendo's ADRs were up fivefold from the launch two years earlier, to $75 from $28.

Nintendo ADRs, at a recent $34, now trade at less than half their peak, undercut by waning sales of the Wii and the DS hand-held, Nintendo's most successful platform so far. The company's sales have been hurt as smartphones and tablet computers, as well as Facebook and other social networks, make big inroads into the gaming market, tapping into huge demand for less costly casual games that can be downloaded.

Indeed, there's a pervasive gloom hanging over the interactive video-game industry, a sense the best days are behind it. Nintendo's stock reflects that; the American depositary receipts, at about 34, are down 8% just since mid-January, even as Nintendo has cranked up publicity for the 3DS. The stock isn't widely followed in the U.S. and tends to slip under the radar of U.S. investors. The strong yen has also weighed on the shares, making the consoles less price-competitive in the U.S. and Europe. The two regions account for more than three-quarters of sales at Nintendo.

The Hit Parade

Nintendo expects to sell 4 million units of the new 3DS in the first month, putting the device in a league with some revolutionary gadgets.

First-Month Sales

Units (mil)

Nintendo DS3

4*

Microsoft Kinect

4

iPhone 4

3

Nintendo Wii

2.2

Nintendo DS

2

Xbox 360

1

* Estimated. Sources: Media reports; Barron's estimates

THIS WOULD BE A GOOD TIME to start paying more attention to Nintendo. Helped by 3DS, the company's earnings are likely to climb 56% in the year ending March 2012 and another 26% in 2013, says analyst David Gibson of Macquarie Securities. That makes the stock look like a steal, especially when you consider that the company is sitting on a huge cash hoard of $13 billion, equal to more than 30% of its market value. Back out that cash—from both the stock price and interest income—and the shares trade at just 12.4 times Gibson's earnings estimate for the coming year. He sees the stock jumping 26%, to 29,000 yen ($350). (Each ADR represents 0.125 shares).

"There's a lot of earnings power not in people's earnings models," says Larry Haverty, portfolio manager of Gabelli Global Multimedia Trust and an entertainment and media specialist. "If this works, it will be huge."

"You can't look at Nintendo without acknowledging the immense strength at developing software and building brands," says Edward Williams, a videogame and entertainment analyst at BMO Capital Markets. He adds that the company is masterful at protecting its intellectual property: The iPhone may have many attractions, but it's not possible and likely will never be possible to play a Nintendo game on any platform other than a Nintendo's.

The Bottom Line

The stock trades at just 12.4 times year-ahead profits, adjusted for cash holdings. Thanks to the new hand-held game and a likely upgrade of Wii, the shares could jump 26%.

While 3DS is grabbing all the headlines now, expect Nintendo to also make a splash in the next year by announcing a new console to succeed the aging Wii. President Iwata could announce that in late February when he addresses the annual Game Developers Conference in San Francisco, something he does infrequently.